Top Benefits Plan Audit Practices
By: Benefits by Design | Tuesday January 31, 2023Updated : Monday January 30, 2023
Guest blog post by Lori Power, GBA — Founder MP Benefits Inc.
Did you know that employee benefit plans can be taken advantage of via fraud or other forms of mismanagement? A benefits plan audit can help employers minimize this risk. It also helps to ensure the plan is on track to remain sustainable.
Some organization will hire outside practitioners to complete a full financial audit of all their benefits, including the group benefit plan, as well as vacation, pension, severance, profits, policies, etc. Many benefit consultants include a full analysis of the benefit program as part of the annual review of the program.
Regardless of the size of the organization, a benefits plan audit keeps the leadership team abreast of:
- liability errors (both internal and external);
- areas for streamlining coverage;
- unnecessary coverage;
- fraud opportunities.
All of which may impact the cost and value of the plan.
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It’s about more than just the numbers
A solid analysis goes beyond simply identifying the claims usage verses premiums on a plan year-over-year. It looks to understand the duties of the employees, how they are paid, and the purpose and role of offering benefits. A benefits audit also seeks to understand how all of these align for overall job satisfaction. This will be the first indicator of whether the coverage options meet with the expectation of the participants.
Going in prepared to have these discussions means identifying areas that could be improved. A benefits plan audit can also uncover mistakes in coverage.
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As in one situation where there was a segment of staff considered self-employed through their own professional corporations. Yes, these professionals were entitled to benefits, but not income-related benefits like Long Term Disability (LTD). Unfortunately, the company had been including this coverage for years, paying premium for staff who could never have collected had they become disabled. This may have also impacted how those with their own personal coverage purchased individual insurance. Through the comprehensive analysis, the coverage was removed, policies were updated, staff were informed, and communication continues.
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Taxes can make a big difference
And there are the tax implications of a benefit plan. If not calculated correctly, they could create unnecessary, unintended financial burden for some. Without a benefits plan audit and the subsequent conversation to follow, an employer could set up a disability program that is unintentionally taxable.
Under the terms of a non-taxable disability product contract the employee must pay 100% of the premium. But what if the business has paid 100% of the premium for employees for the length of time the plan has been in place? A benefits plan audit can discover the financial error BEFORE an employee makes a disability claim and finds out the benefit is taxable. Remember, if the employer pays for the disability premium, the employee will be taxed at the point of claim.
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Anomalies are a good indication something is amiss
By following plan performance over the length of time a client is with you – however long that is (perhaps decades) a benefits audit can identify fraudulent activity.
We were able to identify an anomaly in claiming activity within the health care portion of the plan. Standing outside the regular chiropractic, physiotherapy, and massage claims that were usual to this customer, tens-of-thousands of dollars was claimed in health service items. For ten years prior the claims in this area had been steady and predictable – and then they skyrocketed!
Working with the client and the provider, we identified areas of concern and monitored this for the next year. By the second year, fraud was determined, and authorities informed. Due to the comprehensive nature of the analysis, the claims experience was removed from the client’s claiming history and their rates were not impacted. The fraud in this scenario was not the fault of the employees, as the investigation proved, but a practitioner. This opened up the ability for targeted communication on the topic, better awareness of what to look out for, and involved all stakeholders in the well-being of the program as a whole.
Catch eligibility errors
An annual comprehensive analysis will identify staff and dependents who may have been missed being added or removed from coverage. Life changes such as new babies or recent divorces, which both impact cost and coverage parameters, can be over-looked or missed altogether.
On one occasion, we were able to identify an employee who had waived the health and dental in their current employment, in favour of a former employer. Yes, for years the employee had been making claims under an old benefit plan because that employer missed terminating this employee’s coverage.
Tragically, if an employee (or dependent) is missed for their enrolment on the plan, they run the risk of being deemed a late applicant. They may have to undergo medical underwriting and may in fact be either limited or declined coverage altogether. This will impact the corporate liability in the event of an excess pharmaceutical, disability, or death claim.
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Working in line with the corporate policies, a thorough review will open conversations on the employer’s obligations and responsibilities. For instance, how long do you retain health and dental benefits in the event of a disability claim from a staff member? It is not prudent or responsible to wait until the event to make this decision.
With the mass change in the dynamics of a workforce from in-person to remote, understanding how policies and benefits align in overall compliance to limit liability is a key value-add to any consultant’s practice.